PR_Phil

you guys are all over the place, seems like a few are mixing up revenues with profits, a few a scorned by poor sales or purchases in the past, and a few seem to understand that it is a tough question without more details.

First you have to look at the traffic, the tour, the join process, the aggressiveness of the billing model, the quality of the members area, you have to make a determination if the site is being run well or not, your valuation has to start with this. It's really simple to say a site is worth approximately 10 to 12 months revenue or 3 years profit, but where is that profit going?

If the site is currently declining in sales, and declining in retention, you have to adjust the monthly revenue or monthly income based on the trend that is going on, if the site is losing 5% revenue every month, you have to take that into account and adjust all the future months in your calculations.

If a site is not being run well and you can tell, you need to look at what you would do differently and what the impact will be because there is a value not only to the opportunity to take over the current model, but to improve it and increase it's value.

If the site is a traffic site, you have to look at how well the site is being monetized, what regions are the traffic from, is there unsold inventory that you could sell better, is the traffic growing or waning, regardless of the growth, what is happening with the metrics, are new customers staying longer, or viewing less than old customers.

Does the business model have inherent legal risks, a history of billing and chargeback issues, are those tied to billing practices, a shitty product, or a niche with inherently high chargebacks, (and some niches do chargeback 4 times as much regardless of quality, and the demographics of the user has a lot to do with that.

As a seller, you can determine a lot of the factors, and you can come up with a reasonable starting point (of coarse most sellers are going to ask 3 times that much because they are ridiculous, and need to pay brokerage fees, and collect enough up front to buy that Ferrari that their business never generated enough ash flow for). You need to start with that realistic valuation, you have to fight back the urge to say "oh, well my business is better it should be worth 4 times" and face reality, everything has the same starting point regardless of how cool you think you are. Considering Bruce has a lot of info on this, we can assume he is right and guess that we are starting at something like 10 months gross revenue, or 2.5 years profit. As the current owner you can then asses the state of your business, realistically. If your revenue has been shrinking, you have to work that into your valuations, if you are loosing 5% a month, each month in the future you are evaluating has to continue this trend, no buying is going to bite on your assumption that things have leveled out, chances are you are flat out lying or not willing to admit the truth. Then after adjusting for your current trends, take a realistic look at how well you have done, how smart your people are compared to your competitors, what opportunities are there for your product that you have never explored, and take that into account as well.

once you have done that you have a realistic view of what your product could potentially be worth to the average buyer. But realistically no one knocking on your door is average, if they were, they wouldn't be knocking on your door. They are more likely above average companies who will analyse the opportunity and make a decision based on reality, or below average companies who will buy based on passion, instinct, desire, or the necessity to bring in new cash flow as other opportunities fail. Oh, there is also the crooked scumbag who will want to purchase whatever they can that comes with credit card holding customers attached so they can rip them off repeatedly, their valuation is completely different though, it is more like X number of active members multiplied by how bad they plan to screw them).

so the below average guy will come in and say I want it, he will automatically assume he can run the site better, and automatically assume things are going to get better for the product under his control, and that the industry is just about to start growing exponentially again. If he makes an offer, he will likely low ball you, but by that point he wants it, so he will negotiate and potentially pay you more than what it is worth. He'll use the metrics to try to devalue the product in your mind, but will have no conviction in what he says because in his mind he is going to make it awesome. These are good buyers for value, but chances are when it fails, they are going to publicly blame you for not delivering what you promised, or for handing over something so fucked it just could not be fixed.

when a good company comes in, they are going to go through their own valuation process, which hopefully has a similar starting point as yours, they are going to adjust for the same things we spoke about already, then they are going to adjust for their own strengths and weaknesses. If they feel you are not monetizing well, they will adjust up for that (not their offer, but their room for negotiating). If they have really good people in house working on similar products, they might adjust up for that as well. If they determine that they are just buying a dying revenue stream but want the members, they will adjust down for the fact that they aren't really going to support the product.

finally they will all need to look at the extras that the product comes with, and these can be anything. Obviously the most common in our industry is content, is there exclusive content, is it new or old, has it been exploited on tubes, dvd's, VOD sites, PPV etc. But there are so many other things that can carry value or damage a product. One example that could go either way is to look at the top affiliates, on one hand half the sales could currently be coming from the guys in our industry that demand $60 per sale for which companies ad multiple cross sales, difficult cancellation processes etc, which we all know will just cause CB problems down the road, or the top affiliate could be a genuine whale who works with programs to do it right, it might be a guy that the buyer has been trying to work with for years without success, and this could be their in with that buying, buy one of the programs or sites they are working with.

I guess the short answer is, it is impossible to really know without studying the company, the site, and the financials; But as a seller, you can make a great determination if you can just put your ego aside and accept the numbers for what they are when you are taking a look at it yourself.

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